11/9/10 Midevening Report: As QE2 Hangover Wears Off, Will Market Wake Up in A Pool of Its Own Volatility

It was another lackluster day in the market as investors are still trying to regain their bearings from last week’s quadruple news high of elections, QE2, the jobs report, and Kat Dennings nude photos being released. With all of the excitement of those events more than priced in to the market, investors have spent the last couple of days trying to figure out why printing a fuckload more money is good, how 17% (+/- “oh shit”) unemployment is healthy, and who the fuck cares that Conan O’Brien returned to TV (seriously, the last time Money McBags watched a late night TV talk show was before DVRs, the internet, and shaved bush was in style). With news at a plateau as earnings season winds down, the market should struggle to find direction more than one of Randy Quaid’s kids.

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That said, macro news today was relatively light and irrelevant like CNBC or the SEC’s findings on the flash crash (or the mini flash crashes that keep happening and will continue to happen until someone finally shuts that bastion of evil and market manipulation down known as Waddell and Reed. Shit, Money McBags has no idea why the Pentagon is wasting so much energy trying to figure out who fired a missile off the coast of California when we all know it was just some douchewad trader at Waddell and Reed trying to beat Joshua in a game of Global Thermonuclear War during his lunch break).

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Small business optimism rose from “we’re totally fucked” to “50% off sale.” The National Federation of Independent Business (and it would be too easy to point out the oxymoronic nature of a federation of things that are supposed to be independent) said its small business index for last month rose 2.7 points to 91.7 which was the third consecutive monthly rise as well as the 34th consecutive month below 93. Now Money McBags has no idea what the difference is between 91.7 and 93 (except for 1.3) but when he writes it that way, it makes things seem as ominous as an invitation to participate in a Goldman MBS offering, and almost makes Money McBags feel like the muckraker he has always wanted to be.

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Elsewhere wholesale sales were up .4% which was smallest increase since June while wholesale inventories skyrocketed up 1.5%, doubling analyst guesses and signaling companies are ramping up on pre-marked down items. This jump in wholesale inventories will make Q3 GDP look better (though not this good), but realistically, rising wholesale inventories may signal the economy becoming more backed up than a constipated John Edwards (because that guy is completely full of shit) as retailers stocking up for the holiday season may wind up more disappointed than Lisa Marie Presley on her wedding night or any jackass who is selling all of his worldly possessions in anticipation of 12/21/12.

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Finally, the (No) Labor Department released data showing that job openings decreased by 163k in September to 2.93MM which means ~6 people are vying for every opening (unless that opening belongs to Brooklyn Decker, and then there are at least 60MM people vying for it). That said, two month old data on job openings is about as useful as a regression model with correlated errors so unless Money McBags finally discovers a hot tub time machine to go back to two months ago when that data may have been 1% useful (and trust that Money McBags has tested many hot tubs to find such a feature), he is going to give this a big fucking yawn. That said, Money McBags hopes the (No) Labor Department can find something more constructive to do with their time like find people some fucking jobs or figure out how this guy got a mouse up his ass (And if Money McBags ever gets caught with anything up his ass other than Kate Bosworth‘s tongue, he will also say he doesn’t know how it got there).

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Internationally, the yuan is at its highest level vs. the dollar since 1993 thanks to Benny B. getting his quantitative ease on and testing to see if he can make that which grows on trees worth more than money, thus putting an interesting twist on the old saying. Coming on the heels of this (like a determined podophiliac) is news that Chinese rating firm Dagong Global Credit Rating has downgraded their credit rating of the US debt from AA to A+ claiming the US economy is more virtual than Farmville’s. They also said, and to loosely translate because Money McBags’ Mandarin is still very bad, US GDP will continue to “eat a bag of dick for the foreseeable future.” But it’s not like the US relies on China to continue to sell debt to in order keep the economy going, so no big deal. Oh wait, shit.

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In the market, Ambac finally filed for bankruptcy in the least surprising news since finding out that a priest may be in to porn as apparently insuring all of the shit that destroyed the largest global economy is a less profitable business than selling copies of Strunk and White at a Tea Party event (or to Money McBags).

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As far as stocks go, Priceline was bid the fuck up after putting up its billionth consecutive huge quarter thanks to strength in international bookings, hotel bookings, and car rentals. Revenue was up 37% and EPS was up 57% to $5.33 which easily beat analyst guesses of $4.97 per share and was enough to win them a room at the Columbus, OH airport Hilton Suites. Also up was YHOO as the internet space rallies like it is 1998 when sites like hotornot.com were considered revolutionary and valued at the same levels as small Indonesian countries. YHOO was up on rumors that it is a take out target because apparently Pointcast and Geocities were asking too much.

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Finally Dean Foods was down ~18% as a result of higher dairy costs thus figuratively squeezing the teet on which the company feeds and Sara Lee announced they are selling their North American bakery business to Grupo Bimbo from Mexico which in English roughly translates to “Group of Paris Hilton” (and yes that was a fucking horrible pun, but you get for what you pay, and Money McBags puts no value on your dignity).

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In small cap news today, one of Money McBags’ favorite shorts, WGO, dropped ~7% today on no news other than perhaps common sense. Also, EBIX put up their Q today and once again had spanktacular growth with revenues up 43% and earnings up 77% or up only ~35% once you strip out their one time gain recognized in regards to the decrease in the fair value of a put option issued by the company. So they actually had negative operating leverage as costs were up ~300bps but Money McBags would have an easier time deciphering the Rosetta Stone or getting a blumpkin from Queen Elizabeth II than he would of understanding this company’s financials (same goes for their auditors which is perhaps why they keep hiring news ones).

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Their income statement and balance sheet remain a riddle wrapped in an enigma and covered in shit which is why months ago Money McBags told you all to either stay the fuck away from them or put on some kind of options straddle (and Money McBags would take the option to straddled this) because EBIX is either worth 2x what it trades for or is a complete and total fraud and worth nothing. Money McBags honestly doesn’t know the answer to that but anytime he runs in to a business with that kind of growth with a business model that requires drawing a 3D matrix and praying to the God of What The Fuck is Going On just to understand what they are doing, all kinds of red flags go up.

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Also, DFZ put up their Q today and Money McBags exhaustively broke down their last Q a few months ago in ways that would make the sell side blush. This Q was more of the same in that they continued to have decent growth and continued to execute. Revenue was up 23% y/y to ~$36MM and EPS was up 81% to $.37. That said, before we go out and buy the lobster tails and properly freshen up our junk to celebrate the jizztastic quarter, in the press release, management said sales were pulled forward by ~10% from next Q so if we knock 10% off of revenue and cost of revenue we get a ~11% topline increase and a ~16% bottom line increase. Still very good, and consistent with the message of this company, but nothing to get overly excited about, like the Amanda Seyfried lesbian scene in the movie Chloe (and yes that is the safe for work version).

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They have ~$23MM of cash on the balance sheet, up from $18MM y/y but down a fuckload sequentially as this is the Q they have to ramp up on inventory. They also raised their dividend to $.07 quarterly from $.05 and fired a board member to cut costs (and Money McBags can’t figure out if it is good that they cut dead weight or bad that they had to cut a director who had been with the company for 60 years, no joke).

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The stock was down ~5% on the day despite the decent Q and dropped precisely 15 minutes in to their call so they must have either said something about a pending acquisition (which they keep saying they are going to make) or given some sort of shitty guidance but Money McBags didn’t have a chance to listen to the call or read a transcript yet. Given that, Money McBags is keeping his valuation and thoughts inline with last Q (he guesses they should be worth ~$12-$14 absent a big acquisition) and hopefully tomorrow he will have time to be able to figure out what the fuck they said on the call to cause the stock to drop. He knows it is sloppy analyst work to go through the Q without listening to the call, but he wanted to get you some information rather than none, so it is what it is.

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